1. Technical Field of the Invention
The present invention relates generally to financial transactions systems and more particularly to processing data within such financial transactions systems.
2. Description of Related Art
Millions of credit card transactions are accurately processed every day regardless of whether the purchaser is making a purchase in his/her home town, in another part of the world, or via the internet. Each transaction has a two stage process: authorization and clearing & settlement. Authorization is the process of approving or declining the transaction at the commencement of the transaction and clearing & settlement is the process of making the payment and accounting for the payment.
The authorization process begins when a point-of-sale terminal (physical for in-store purchases, virtual for internet purchases) reads a purchaser's credit card information and obtains a transaction amount. The terminal transmits the credit card information and the transaction amount to an acquirer bank, which combines the credit card information and the transaction amount into an authorization request. The acquirer bank transmits the authorization request to a proprietary transaction processing network (e.g., VisaNet®), which routes the authorization request to an issuer bank (i.e., the bank that issued the credit card). Alternatively, the proprietary transaction processing network may perform a stand-in review and authorization.
When the authorization request is sent to the issuer bank, the bank, or a designated third party, reviews the request and approves or denies it. The issuer bank transmits a response to the proprietary transaction processing network indicating its decision. The proprietary transaction processing network forwards the response to the acquirer bank, which in turn, forwards the response to the point-of-sale terminal.
The clearing & settlement process begins with clearing, which, in turn, begins when the point-of-sale terminal, or other merchant processing device, transmits sales draft information (e.g., account numbers and amounts) to the acquirer bank. The acquirer bank formats the sales draft information into a clearing message that it transmits to the proprietary transaction processing network. The network transmits the clearing message to the issuer bank, which calculates settlement obligations of the issuer bank, processing fees, and the amount due the acquirer bank. Settlement begins when the issuer bank transmits funds to a designated bank of the proprietary transaction processing network, which, after processing, transfers the funds to the acquirer bank.
The authorization and clearing & settlement process works essentially the same way for commercial credit card transactions as it does for personal credit card transactions. Commercial credit card transactions, however, have additional factors to consider. For instance, current U.S. tax laws require businesses, government agencies, and tax-exempt entities to report payments via a 1099-MISC form made to “service” merchants when annual aggregate payments exceed $600 per calendar year. If the company does not have the merchant's TIN at the time of payment, the company is required to backup withhold a portion of the payment. The matter is further complicated by inaccurate, incomplete, and/or inconsistent merchant data with respect to the merchant's taxable business identity. If the inaccurate, incomplete, and/or inconsistent merchant data is used to report the payments to a particular merchant, the reporting company may be subject to penalties for not accurately reporting the payments to the merchant. As a result, companies using commercial credit cards find it difficult to meet these requirements and many limit commercial credit card purchasing to merchandise-only transactions, effectively eliminating a significant potential market share.
To help with this issue, the Internal Revenue Service (IRS) has initiated a Qualified Payment Card Agent (QPCA) program that enables a payment card organization to collect, validate, maintain, and distribute merchant data needed for IRS Form 1099-MISC reporting. Currently, merchant data is provided to a payment card organization (e.g., Visa, Inc.) from the acquirer banks of the commercial credit card holders. The acquirer banks have no obligation to verify the accuracy of merchant data collected on behalf of its commercial credit card holders. As such, the merchant data in the payment card organization's database includes inaccuracies, incomplete records, and/or inconsistent data.
Therefore, a need exists for a system and method for obtaining merchant data and verifying the accuracy of the merchant data stored by a payment card organization.